US Fed’s ex-risk expert flags inflation worries and suggests how China can tackle economic obstacles
- Carl Tannenbaum discusses when and how the US may cut interest rates, and why he is concerned about long-term effects from tensions and supply-chain upheavals
- As China contends with weak spending and low inflation, breaking the cycle will not be easy if people expect economic woes to continue
Expectations that a US interest rate cut will be delayed to later this year – or perhaps even to 2025 – continue to heap depreciation pressure on emerging-market currencies, including China’s yuan.
And the large interest-rate differential between Western countries and China is making it difficult for the People’s Bank of China (PBOC) to keep the yuan aligned with their targets while being mindful of greater capital-outflow risks, according to Carl Tannenbaum, who was the US Federal Reserve’s risk manager during the global financial crisis.
Now the chief economist at financial services firm Northern Trust, Tannenbaum said the earliest US rate cut could take place in September, but inflation remains a decisive factor, and there must first be sustained evidence showing a drop in prices for the central bank to ease up on interest.
“I worry a little bit about the long-term impact of inflation from some of these changes we’re seeing globally on supply chains and the increase in geopolitical tension,” he said. “The level of globalisation is clearly lower than it was 15 years ago.”
A report by the US-based International Monetary Fund in April warned that while overall inflation pressure had eased from its highs, volatility in oil prices, service inflation, and trade restrictions on Chinese exports could also push up goods inflation.
Unlike in many parts of the world, inflation rates in China have been low, and there have been expectations from investors that the PBOC may cut interest rates to boost weak credit demand.
